Ombudsman upholds complaint after Lloyds VISA Debit payments

According to City watchdog, the Financial Conduct Authority (FCA), binary options are a form of fixed-odds betting, which has been banned in the UK since April 2019. Investors bet on whether an event happens – if it does, they win and should see a return on their investment, if they lose, their money is gone. People should be aware that, since April 2019, if they have been approached about a binary options product, then it is likely to be a scam.

In December 2017, Mr W contacted a company called O Ltd to find out more about binary options trading. He was assured that he would receive the services of a broker to guide him through each trade, so that he wouldn’t lose any money and ensure he achieved good returns. Mr W made a total of 12 payments, the entirety of his life savings amounting to £91,000.

The initial investments were relatively small (£500 each), and Mr W was given access to an online platform where he could see how each trade performed. He could see the overall value of his investments going up and, with regular daily contact from his broker, was persuaded to invest increasingly larger amounts.

When the investment account reached £134,000, Mr W tried to withdraw £60,000 to repay the mortgage debt. On two occasions, O Ltd cancelled the payout, citing different breaches of their Terms & Conditions. The broker contacted Mr W again and persuaded him to invest the entire balance of his trading account in a ‘100% guaranteed’ trade, which would leave a zero balance on the account. Later the same day, Mr W was emailed to say that the trade had not been successful, and he had lost all his money.

With red flags raised, Mr W carried out some research and found that other people had lost money trading through O Ltd. The trading platform turned out to be a simulation, rather than a real platform, showing trades that had never been made and returns that didn’t exist in reality. O Ltd was not regulated by the FCA, meaning that it was not going to be straightforward for Mr W to make a complaint or to try and get his money back.

Mr W first asked his bank, Lloyds to help get his money back. They refused to help, saying that they had honoured the payment requests Mr W made (to pay O Ltd) and that in accordance with their terms and conditions, they could not process chargeback claims. Mr W was offered £300 for his inconvenience.

According to VISA, a chargeback is “a way for your bank that issued your card to reclaim money from the retailer’s bank when you do not get the goods or services you paid for, including if the retailer or supplier has gone out of business.

Chargebacks are not a legal right, but if you have paid on a Visa debit or credit card, you should address a chargeback claim to the bank that issued your card, and they can then put in a request to the retailer’s bank.” In Mr W’s case, the issuing bank was Lloyds, and the ‘retailer’ was O Ltd.

Mr W ended up having his bank accounts closed, as he was significantly overdrawn and couldn’t meet the overdraft payments. He turned to FOS for help.

An initial FOS investigation pointed out that Lloyds should have submitted a chargeback claim to VISA, given that Mr W had been the victim of O Ltd’s scam. After 7 months, Lloyds Bank had not responded to FOS’s initial findings and had not paid Mr W any of his money back.

The case was escalated to an Ombudsman for a final decision. She pointed out that, in 2017, Lloyds Bank had the authority to delay payments or make additional checks if they suspected that they may be fraudulent. Regardless of how a customer transfers money to a third party (i.e. by bank transfer, debit card or credit card), banks have a duty of care to protect them.

As early as 2012, the FCA had published guidance for banks on how to protect customers from investment fraud. The guidance has been updated and widely publicised since and there was no reason why Lloyds shouldn’t have been aware of it. The guidance included providing warnings to customers about the dangers of falling victim to investment fraud. It also included examples of good practice around assessing risk to both the bank and the customers of losses from fraud.

In addition, in 2016, both Action Fraud and the Gambling Commission published warnings about binary options trading, which the bank should have known about. The Ombudsman went on to cite reports by the police and VISA themselves in 2017 about such scams.

The Ombudsman concluded that Lloyds Bank should have been actively looking for and preventing unusual or out-of-character transactions. They should have been monitoring accounts and payments, intervening, if necessary, to actively protect customers from fraud. And they should have been aware of binary options investment fraud and been on the lookout for payments to companies like O Ltd.

Lloyds had initially said that ‘High-value transactions would potentially be stopped. However, it is often seen that high-value transactions to investment companies are normal so transactions such as these are less likely to be blocked.’

Following the Ombudsman’s decision, Mr W received his initial investment back in full and was awarded compensation for distress and inconvenience. His overdraft was cleared, any fees paid, and his credit rating was reinstated. FOS’s decision in effect put Mr W back in the financial position he was in before he invested with O Ltd.

Sarah Spruce, Head of Professional Negligence at TLW Solicitors said:

“Clearly, Lloyds Bank did nothing to help protect Mr W from fraud and offered very little support after his money was lost. Mr W was an unsuspecting investor, who believed his money was being traded legitimately, but unfortunately, he was tricked by a sophisticated scam and suffered much distress. FOS disagreed with Lloyds Bank about Mr W’s inability to claim through the chargeback scheme, too. They should have pursued this claim for Mr W and there is a good chance he would have received his money back much sooner.”

Fraudsters are finding increasingly sophisticated ways to con their victims out of their hard-earned cash. Authorised Push Payment (APP) Fraud happens when people are tricked into making a payment from their bank account into the scammer’s account. The money is usually moved on quickly to another account, often overseas, meaning that it is difficult to trace and recover. Unfortunately, scams are on the rise, and banks and other financial institutions are expected to step up their vigilance in response to protect their customers.

The specialist Authorised Push Payment (APP) Fraud team at TLW Solicitors has many years of experience in successfully dealing with investment scam claims, even where initial complaints have been rejected by the banks or FOS.

We understand the time limits to be followed, the information needed and the claims and appeals processes. The team will also deal with any complex legal arguments and defences that the bank may raise. The combination of our experienced team and digital case management systems means that we proactively pursue your claim and aim to get the best possible results.